An industry turning over hundreds of millions of dollars, employing thousands of people, is cynically cheating naive would-be investors worldwide via a range of corrupt practices. It is doing terrible harm to its victims, and it risks doing the same to Israel's reputation

He was working in the administration of a factory in Australia when his boss died suddenly, and, at the age of 28, he realized it was a good time for him to move to Israel. “I thought, ‘I’m free, no strings attached, I can go.’”

Guralnek enrolled in Jerusalem’s Ulpan Etzion to learn Hebrew, then moved to the vibrant and bustling city of Tel Aviv, where he landed a series of minimum-wage jobs for NIS 25 (a little over $6) an hour: chopping vegetables in a restaurant, driving a disabled person, working the night shift at a hot-dog stand.

Guralnek sat in a call center with about 50 other employees, many of whom were new immigrants fluent in a variety of languages. His job was to call people around the world and persuade them to “invest” in an ostensible financial product called “binary options.” The clients would be encouraged to make a deposit — to send money to his firm — and then use that money to make “trades”: The clients would try to assess whether a currency or commodity would go up or down on international markets within a certain, short period of time. If they predicted correctly, they won money, between 30 and 80 percent of the sum they had put down. If they were wrong, they forfeited all the money they put on that “trade.” Guralnek soon saw that the more trades a client made, the closer they came to losing the entirety of their initial deposit.

He had been instructed to present the binary option as an “investment” and himself as a “broker,” even though he knew they would most likely lose all their money. “The client isn’t actually buying anything. What he’s buying is a promise from our company that we will pay him. It’s gambling and we’re a bookie,” he says now.

Before he started the job, the company gave Guralnek a week-long sales course in which he was taught enough financial knowledge to sound good to a customer who knew less than him. He was also instructed in high-pressure sales tactics.

“They taught us how to make people uncomfortable, how to answer objections, how to keep them on the phone.”

The training session was known as a “conversion course” and the goal was to learn how to turn a telephone lead into a customer by taking their first deposit. At his company, salespeople were not allowed to take a deposit of less than $250.

During the sales course, the company’s management gave Guralnek advice that haunted him later. “They told us to leave our conscience at the door.”

Is this legal?

As the weeks passed, more and more questions formed in Guralnek’s mind — questions that underlined the bizarre financial netherworld he had entered. Why didn’t he know the surnames of his managers? Why were workers prohibited from speaking Hebrew or bringing cellphones into the call center? Who was the company’s CEO? Why was it okay for the company’s Arab-Israeli staff to sell binary options in places like Saudi Arabia while other countries, like Israel, the United States and Iran were off-limits?

Even worse, Guralnek began to suspect that beyond the poor odds customers had of actually making any money, and beyond the aggressive sales tactics, what the company was doing was downright illegal.

For instance, every salesperson was asked to invent a fake name and biography. The call center used Voice over Internet Protocol (VoIP) technology, which displayed a local phone number to customers anywhere in the world. The company’s website listed an address in Cyprus.

“I was told to tell people I had years of experience in the market, that I had studied at Oxford and worked for the Bank of Scotland.”

Guralnek says he was told to present himself as a broker who made a commission on the trades and to emphasize how much money the customer could make while downplaying the risk. In fact, rather than helping customers to make smart trades, the “broker’s” true interest was for them to make unsuccessful predictions and lose their money.

Guralnek says he was also increasingly disquieted by what happened when the clients tried to quit. That’s when they would be asked for a lot of paperwork.

“We would say, ‘You want to withdraw? OK. We need to verify your identity before we can release the funds. You need to send us a photocopy of your utility bill, your driver’s license, your passport, your credit card’” — requirements, needless to say, that had not been mentioned when the client put money in.

While the customer was gathering and submitting this paperwork, a “retention” agent would call them and go through their trades, purportedly figuring out what went wrong and convincing them to continue trading. “We could delay that withdrawal for a long time.”

‘Why should I be blamed for selling something to stupid people? If someone is over 18 and wants alcohol, cigarettes, a knife, a binary option account, it’s his own responsibility’ — Facebook post

If a customer was persistent, says Guralnek, very often the company would stop taking their calls, or send them an email saying ‘we suspect you of fraud’ and freeze all their funds. Because the customer didn’t know the real name or location of their salesperson, “they had nowhere to turn to get their money back,” explains Guralnek.

But the grimmest part of the job for the young immigrant was asking for money from people who seemed poor and dejected.

“They believe they’re doing something good: They’re making an investment, doing something responsible. And they’re not. Every story is sad. Everyone’s got people depending on them. Lots of people are finally getting back on their feet after a drug problem or something.”

The worst was when a client told him, “I’m in hospital.”

“When someone says ‘I’m in hospital and I have cancer,’ we’re supposed to still sell them. But I would throw the sale every time. I couldn’t do it.”

A vast, dishonorable industry

If you type the words “binary options” or “forex” into Facebook groups that cater to new olim (immigrants to Israel), you will encounter long threads of heated exchanges.

“Do any of you who are involved in Forex/Binary options realize that this is a highly unregulated business that it is soliciting gambling to misinformed or uneducated persons?’ reads one such post in the popular Secret Tel Aviv group.

“Why should I be blamed for selling something to stupid people?” a woman replies. “If someone is over 18 and wants alcohol, cigarettes, a knife, a binary option account, it`s his own responsibility.”

“Would you sell it to your grandmother?” the original poster fires back.

In the “Keep Olim in Israel Movement” Facebook group, a woman writes, “Hi all, can someone explain to me what are Binary and Forex jobs and why people are so anti-working in these industries in Israel?”

“This field is dishonorable,” reads one reply. “I’ve done it and I felt nothing but shame and self-loathing for harassing people who never asked for this call and trying to get money out of them that they’re unlikely to ever get back.”

“If you don’t like it, don’t do it,” reads another. “Work what you feel is an ‘honest’ job, make your 6,000 shekels (approx $1,500) a month take away, spend it half on rent and live like a rodent with the rest of it.” He continues, “While the Binary and Forex industry and I pay 50% taxes on our salaries to pay for your health care, social security, and security, I can speak for all of us, we don’t need to be judged.”

No one seems to know precisely how big the binary options and forex industries are in Israel. Not even the Israel Securities Authority, which, when posed the question, responded via text message, “As the industry is still unregulated, we don’t have the full picture.”

But conservative estimates put the number of people employed in the industry at several thousand, mostly in Tel Aviv and its suburbs like Herzliya and Ramat Gan, while annual revenue could be anywhere from hundreds of millions to over a billion US dollars.

Globally, the term forex normally refers to legitimate trade in foreign currency, while binary options is the name of a financial instrument. In Israeli popular parlance, however, “binary options” and “forex” are often lumped together as part of the same industry: When Israelis refer to forex companies, they often mean companies that “trade” the binary options on currencies. Sometimes the terms Forex and binary options are used interchangeably to refer to rapid, all-or-nothing trades on a range of assets.

At some binary options firms, the online platform is manipulated to provide false results that ensure the customer loses

The “trading” process can work as follows, The Times of Israel was told. Having transferred their first financial deposit to the company, customers log in to an online trading platform, as directed by the company’s salespeople, and place money on a prediction that the price of a currency or commodity will go up or down on international markets in, say, the next five minutes. If the customer predicts correctly, he makes a profit of a certain percentage and the company loses money. If the customer is wrong, he loses all the money he placed on the trade, and the company keeps it. Professional options traders consulted by The Times of Israel said that even a financial genius cannot predict with any confidence what, say, the price of gold will do in the next five minutes; rather than an investment, the transaction is really nothing more than a gamble.

The misrepresentation of gambling as responsible investment would be bad enough.

What’s worse, though, and blatantly corrupt, The Times of Israel was told, is that, at some companies, the house is bent. A variety of ruses are used. The potential payout for a correct prediction is complex, opaque and calculated to minimize the company’s loss. If an asset is behaving in a predictable way — say, the price of copper starts to climb following an earthquake in Chile — the company will pull that asset from the online platform. At some binary options firms, the online platform is manipulated to provide false results that ensure the customer loses.

Estimates of the number of binary options and forex companies in Israel vary from 20 to several hundred. The IVC Research Center, a company that provides information about Israel’s technology sector, estimated in its 2015 yearbook that there are 100 online trading companies in Israel, the overwhelming majority of which fall into the categories of forex and binary options. IVC estimates these companies employ more that 2,800 people in Israel. However, the yearbook states, “it’s difficult to gauge the actual size of the online financial trading industry in Israel,” in part because the industry is “low-key” and its “Israel nexus is often understated.”

The lobby of TheTime Startup Incubator in Tel Aviv (Photo by Eytan Brucker/liftoff.co.il)

A 2014 report on the Israeli Internet industry by TheTime startup incubator says that of the 90 Israeli Internet companies earning revenue of $10 million or more per year, 15 were online trading platforms, many of them trading forex and binary options. Three of these, according to the report, were assessed to have revenue of at least $100 million a year. Some other companies on the list included iForex, bForex, AnyOption, 4XPlace, Optionbit and Banc de Binary. Based on these assessments, the Israeli forex and binary options industry has annual turnover in the hundreds of millions, possibly even billions, of dollars.

How many are fraudulent?

It is anyone’s guess what percentage of online financial trading companies engage in unethical, illegal and/or fraudulent practices. One distinction many people interviewed for this article drew was between unregulated and regulated companies.

Several large, better-known companies with Israeli founders or major sales and marketing operations in Israel are regulated in Cyprus, which gives them license to sell financial products in individual EU countries even if they are not regulated in those countries.

Many forex and binary options companies operating in Israel, however, are unregulated.

Sam C., a recent immigrant to Israel from the United States, describes his experience working in an unregulated binary options company last summer.

Many customers had clicked on an ad hawking ways to earn money from home. ‘They actually believe that they’re going to become a millionaire just by doing this’ — former customer service staffer at a binary options firm

“They make it extremely, extremely hard for customers to withdraw their money,” says Sam, who worked in customer service and who asked that his real name not be used.

“You have to find a copy of your driver’s license, a copy of your utility bill and there are so many rules and requirements. Half of the calls I had to deal with were just people complaining, saying that it’s been months and I need my money now. I need it to pay for this or that. Pretty much the company just refuses to give it up.”

In fact, Sam says he “cannot confirm” that any customer ever received payment or withdrew their money during his few months working at the company.

“People would call back and call back. And eventually, sometimes one of my managers would say, ‘Don’t take that person’s calls anymore and close his account.’ They would say, ‘We’re done with him and all the money doesn’t matter. Don’t take calls from him anymore.’”

Most of the customers of Sam’s company were from the United States, even though it is against US law for companies to sell binary options to US citizens in this way. Additional clients were from Africa, Qatar and Saudi Arabia. Many had clicked on an ad hawking ways to “earn money from home” or watched a video that claimed to reveal secret investment strategies.

“The majority seemed to be… the stereotypical dumb person,” recalls Sam. “You don’t even realize that people like this exist outside of movies. They actually believe that they’re going to become a millionaire just by doing this. And it’s almost sad.”

Asked about his managers, Sam said they were young Israelis who appeared to think it was cool to rip people off.

“They seemed like they had just watched ‘The Wolf of Wall Street’ and wanted to emulate the characters. The banter they would have, would be like, oh yeah, I can’t believe he fell for that, I can’t believe you got him to invest $300.”

Sam says one his managers would actually quote Leonardo DiCaprio’s sales pitches from the movie verbatim over the telephone when trying to sell binary options.

“‘Hello, John. How are you doing today? You mailed my company a few weeks back, requesting information on an investment that had huge upside potential with very little downside risks,’ he would quote from memory. ‘Does that ring a bell?'”

“I thought it was kind of pathetic, to be honest,” recalls Sam.

Manipulating software

In 2013, the United States outlawed the marketing of binary options to its citizens, except on a handful of regulated exchanges. On its website, the Commodity Futures Trading Commission (CFTC), an independent US government agency, alerts investors to “fraudulent schemes involving binary options and their trading platforms. These schemes allegedly include refusing to credit customer accounts, denying fund reimbursement, identity theft, and manipulation of software to generate losing trades.”

“Trading binary options can be an extremely risky proposition,” warns another US-based regulatory agency, the Financial Industry Regulatory Authority (FINRA), on its website. “Unlike other types of options contracts,” says FINRA, an SRO that regulates member brokerage firms and exchange markets, “binary options are all-or-nothing propositions. When a binary option expires, it either makes a pre-specified amount of money, or nothing at all, in which case the investor loses his or her entire investment. Trading binary options is made even riskier by fraudulent schemes, many of which originate outside the United States.”

In Israel, many so-called “forex” companies are actually selling binary options, meaning that a client bets on whether a currency will go up or down, rather than buying the currency, Jared K. a former Wall Street broker explains to The Times of Israel.

“Traditional forex is I buy at 3.50, I sell at 3.60. Binary forex (that is, forex in the world of binary options) is saying ‘if it goes to 3.60 I win money, let’s say 20% more than I bet, but if it goes to 3.50 or lower, I lose.’”

Trading binary options is made even riskier by fraudulent schemes, many of which originate outside the United States — US government warning

Graham P., who currently works in marketing for a large, Cyprus-regulated binary options firm in Tel Aviv, says he knows about efforts to manipulate software as described by the CFTC — cynical intervention by binary options firms to ensure they win, the industry’s equivalent of a rigged roulette wheel in a casino.

“I spoke to a guy I was potentially going to work with, and he had actually developed a binary options platform. He said that everyone he met who was interested in buying the platform (to start their own company) wanted him to create a back door.”

By “back door,” Graham means that companies want to be able to manipulate a “trade” at the last minute if a customer or group of customers appears to be winning too much.

“Let’s say 70 percent of the traders are for some reason betting that oil is going to go up. So then the companies say, gee, if we make just 30 percent win, we’ll be able to keep a lot more money. And the algorithm does that. It’s very easy to tell the customer, oh, the line fell a little bit below your position.”

If the customer brings proof that the price of oil did actually go up to where they predicted it would, the company will point them to the fine print, which states that the company has its own algorithms which may differ from real-time.

“Trading rates assigned to the assets on our website are ones at which our company is willing to sell binary options to its customers at the point of sale,” reads a typical disclaimer on many binary options websites. “As such they may not directly correspond to real-time market levels at the point in time at which the sale of options occurs.”

Graham, whose company is regulated in Cyprus, said that in his view “the entire binary options industry is fraudulent.” If so, this represents cynical and systematic corruption on an huge scale — dwarfing such damaging scandals as the illegal hawking of Dead Sea products by Israelis at kiosks in malls around the world — unconscionably allowed to flourish, with extremely grave potential repercussions for Israel.

”For some crazy reason it’s legal in Europe. Individual European nations are letting binary options fly. While countries like the United States smelled the bullshit a long time ago and made it illegal.”

Graham said that on a gut level, he would like to see the industry shut down, but he is worried.

“There’s so much money pouring into the city; it’s literally an industry here — I’m including forex too. It’s probably paying for the subway system we’re installing. Can you imagine thousands of people in Tel Aviv out of work?”

General view of Tel Aviv on December 27, 2010. (Abir Sultan/Flash 90)

‘A bad reputation’

Chaya Berkowitz, an eight-year veteran of forex companies in Israel, tells the Times of Israel that her own experience in the industry has been good. “I’m not oblivious. I’m aware that it has a very bad reputation. I don’t think that’s 100 percent justified.”

Berkowitz asserts that there are legitimate companies in the industry, and rattles off the names FXCM, Alpari and FXPro, none of which are based in Israel.

“If you have ten forex companies, probably six or seven of them have bad reputations that give the others a bad name. It’s unfortunate because the others take their business seriously and do care about their clients,” she says.

Asked if those six or seven are guilty of fraud, Berkowitz avers, “I wouldn’t say they’re committing fraud. They have the reputation of lying to their clients and misleading advertising. That definitely exists, but there’s a reason some of the big brokerage firms are still around. It’s because they usually play by the book — otherwise they’re not around very long.”

Berkowitz estimates that in legitimate forex companies, two or three out of 10 clients do earn profits and are able to easily withdraw their money. Asked how to tell if a company is legitimate, she says, “I would look for tougher regulation, not a company regulated on some island somewhere but regulated in the UK, the United States or Australia.”

Cyprus, she claims, has become stricter in recent years. “It’s becoming a more recognized regulatory agency.”

“I would also ask friends or other investors. Personal word of mouth is huge. I would do my homework. Look online to see who has a good reputation. I would ask questions when researching a broker. Do I have easy access to my money? Do you offer education?”

Reeling the customers in

After getting her Master’s degree in Israel and marrying an Israeli, Lynne R., a native Californian, began looking for a job, but was disappointed by what was out there.

“It was really shocking to me, once I started going to companies, to find out how low the salaries were. I wanted to find something more competitive, more similar to what I was earning in the United States.”

People kept mentioning to Lynne that binary options jobs paid well. She posted the fact that she was looking into a couple job sites on Facebook, and “I probably had 25-30 people call to set up interviews.”

Lynne went on five or six interviews, where she learned she was eligible for two types of jobs.

“There’s conversion and retention. For the conversion jobs they were telling me I would make around 15,000 shekels ($3,850) a month and for retention jobs they told me I could make 30,000 to 40,000 ($7,700 to $10,250) a month.”

At each interview, Lynne probed extensively as to the nature of the job. Each company has its own marketing methods, often involving videos that tell the story of a person who learned a secret method of extracting money from the market, she says. One firm told her it attracted customers with a “robot”:

“They said, basically we use a program, which we call a robot. We market it to people and we say it can make small trades for you, like $100 or $200, and there’s an Internet program that will do, you know, some magic and make you a few hundred extra dollars a month.”

Lynne’s job would be to call people who had paid $200 to use the robot, and persuade them to deepen their involvement.

“You call them and you say, well, you have this robot, but it’s not actually that great of a program; it was sold to you by an affiliate of ours. If you want to make serious money, you need to start trading, and we can tell you how. We’re expert traders. All you need to do is make a bigger deposit, and you’ll get a personalized account with us and a personal trader. All you need to do is make a deposit of $500 and we’ll get you started.”

Lynne was eventually offered a retention job, and was enrolled in a two-week training course. The first thing she was told was to never reveal she was calling from Israel. All retention staff were asked to pose as trained brokers working out of a London office. They were required to brush up on the day’s weather in London as well as what was happening in the news.

“You had to make yourself a biography. You needed to think of a business school and say that you went there. You needed to say that you were a trader, that you had worked for either an investment bank or on Wall Street. If you’re a woman, they encourage you to say you’re single because guys will more likely deposit with you. If you’re a guy, you want to have a wife and two kids, because that makes you relate-able.”

The company, she said, was regulated in Cyprus. “The industry is certified for Europe, but you’re not heavily regulated. It’s a way to be EU-accredited without a lot of oversight.” (Finance Magnates, a trade publication of Israel’s online financial trading industry, has written in the past that Cyprus has a reputation for lax regulation.)

‘When we offered training to them, we would share their desktop and walk them through the website. We were told to look around their desktop for pornography or online slots or other signs of compulsive behavior, because that means they’re more likely to make a deposit’ — former binary options retention agent

Lynne says her company’s selling point, which it bragged about, was that it was more ethical than other binary options companies. “If someone asked to withdraw their money we would give it to them within 48 hours,” she says.

When Lynne started playing with her company’s binary options platform, she realized it was fun and addictive, “almost like a gambling game.”

There was lots of adrenaline.

“If you put money in your investment account today, it might give you 3 to 6 percent returns. In binary you see 70 percent coming in right away.”

If conversion agents were expected to get a client to make their first deposit, retention agents like Lynne were tasked with bringing in the big money. The first step was to size up the customer.

“They told us to look up people’s homes on Google Maps to see how rich they seemed and to check their credit card information to see if they had gold or platinum status. Also, when we offered training to them, we would share their desktop and walk them through the website. We were told to [abuse that access and] look around their desktop for pornography or online slots or other signs of compulsive behavior, because that means they’re more likely to make a deposit.”

“You call someone and you tell them my name is Jane Smith, I’m calling from London where I’m an investment banker for this amazing firm. I’m calling to talk to you about how much you actually want to make. We see that you’ve invested $300 but we both know $300 is not going to make you anything. So what is it you actually want to make in a year?”

“So people would say, ‘I want to make $100,000.’ ‘I want to buy a house’ or ‘I want to travel.’”

“They tell you something that they want and then you say, ‘so it will probably take you 6-8 months to achieve that. If you want to achieve it you need to trade every day. I’m going to be working with you. I’m going to give you information about which picks to make every day.”

Lynne said the “broker” would check in with customers regularly, encouraging them, teaching them about the market, and offering tips. When the broker chose a stock for them to bet on, the stock would often perform as promised. When they got on the platform and made their own picks, they started losing. Then the broker would come back and help them make some good calls, and they would win again.

“So basically you come across as this really great trader, but in reality you are just trying to make the volume of trades be as high as possible.”

The next step, recalls Lynne, was to ask for a $10,000 deposit.

“Customers usually balk and say ‘There’s no way I want to deposit $10,000.’ So you pressure them and say ‘If you’re not really serious about making money, then why are we talking right now?’ Traders try everything. Some are really sweet, some try to identify with them, some try to make them feel awkward — whatever the technique is that gets them to deposit. The favorite technique is to say, ‘If you deposit $5,000, I will give you a $5,000 bonus.’ Customers hear that and they say ‘That’s insane. I’m going to deposit.’”

But the bonus, explains Lynne, is a trap.

“You’re not allowed to withdraw any of your money until you use that bonus money something like 30 to 40 times over. Let’s say I give you a $1,000 bonus. You would need to trade that until you made at least $30,000 profit off of it, and then you can withdraw your money. But you will never get to that amount. Let’s say you make $10,000 off of it and you say you want to withdraw, in the contract it will say you can’t withdraw. You can take your original money out, but you can’t take the bonus or the money you earned with the bonus.”

“So clients get stuck in the system, because they don’t want to lose all their money, and by the time they trade 30 times the amount of the bonus, they’ve lost everything.”

The longer you trade, the more money you lose, says Lynne. “You can’t go that far typically and be successful.”

However, Lynne says again, with her company, if you resisted the temptation to take the bonus, and if you put in a request, the company would send you your money.

“They really bragged about the fact that they were good about giving people their money right away. In fact, they encouraged people to take small withdrawals. If a customer had $10,000, they would say, why don’t you take $2,000 and take your wife on a small trip? It’s very calculated with how much they’re giving out and how much leeway to try to give the customers.”

Lynne quit her binary options job soon after the training course because she said she couldn’t stomach taking the savings of “schoolteachers and truck drivers.” Asked whether she thought what she had been assigned to do was unethical or illegal, she replies: “It was certainly unethical. When I tell people about this job, they are shocked. They say, that could never be legal, there’s no way Israel would ever allow that.”

‘Economic terrorism’

In November 2014 a man by the name of Ariel Marom, who described himself as a former employee of several companies in the forex industry, sent a strongly worded letter to both the Finance and the Ethics committees of the Knesset, as reported in Israel’s financial daily Globes.

“I am calling on the regulator in charge of banking services and the Knesset Finance Committee to immediately take action to stop the wave of plundering, theft, fraud, money laundering, and crime on an international scale that is managed and operated in Israel that is hurting thousands of customers around the world.”

Marom described the forex industry as “economic terrorism” targeting the citizens of many countries.

“When this information becomes public knowledge through investigative reports by the media, which is bound to happen sooner or later, Israel’s status in the world will be damaged and it will unleash a wave of hatred toward the Jewish people and Israel, causing tremendous damage.”

‘When this information becomes public knowledge through investigative reports by the media… Israel’s status in the world will be damaged and it will unleash a wave of hatred toward the Jewish people and Israel, causing tremendous damage’ — letter sent to Knesset committees

Marom said in the letter that he had been searching for a job in recent months and as a Russian speaker had interviewed with forex companies that operate in Israel and target customers abroad. He said he was surprised at the sheer magnitude of the fast-growing industry.

“There are hundreds of jobs currently available to Arabic, Russian, English, Spanish and French speakers as these companies seek new workers for their expanding departments.”

Marom added that after years in the traditional banking industry, he was shocked at the practices he witnessed in several forex companies.

“In the absence of any regulation, they are simply robbing customers. Many people compare forex to a casino, but it’s worse than a casino. A casino hands you your winnings immediately. Forex companies — and I’m talking about most of them — simply do not allow people to withdraw money.”

Marom goes on: “Many forex customers have no idea that the company operates from Israel, especially when we’re talking about the Arabic-speaking desks. Their complaints never reach our justice system and so the industry is not exposed. How is it possible that this has been happening for years, with no local regulation? What happens when thousands of Turks, Russians, Spaniards, Italians and French figure out that the scam they fell for was carried out from here, in Israel? Are our regulators waiting for synagogues to start blowing up all over the world to shut this thing down?”

It is not clear what the Knesset Finance Committee did in response to Marom’s letter. The Times of Israel tried to track Marom down, but the CEO of FeeX, a high-tech startup he used to blog for, said he had not heard from Marom for a few years and had no contact information. Marom’s LinkedIn profile placed him at a high-tech company in Brazil where no one who answered the phone seemed to speak English. A phone call to an “Ariel Marom” listed near Haifa was answered by a woman who said her husband is an astronomer, not a finance professional.

“You’re the third journalist who has called looking for Ariel Marom in the last two weeks,” she said. “Now I’m curious.”

The Times of Israel asked for the help of SixGill, a cybersecurity high-tech firm that specializes in the dark web, to track down Marom, but after a brief automated search, Tommy Ben-avi, a senior analyst at Sixgill, concluded that either “Ariel Marom is not his real name or he doesn’t want to be found.”

The cyber intelligence company did, however, make some interesting observations about the forex and binary options industries. Ben-avi mentioned several companies known to be operating from Israel.

“This industry is a bit shady. It’s hard to get to the owners and CEOs of some of these companies. Most of the time, when you have a company that large, you can see the owner, you can see the shareholders.”

Ben-avi conducted an automatic search with a system that scours hundreds of thousands of sites and closed dark web forums. “It seems like they’re trying to hide their identity. Maybe a few companies have the same owner, and they want to hide that fact,” he mused. “Or maybe their business is not 100 percent legitimate.”

How it’s done on Wall Street

Jared K., a licensed stockbroker from the United States who now lives in Tel Aviv, says that he sees several problems with the local forex and binary options industries.

“On Wall Street, brokers are regulated, transactions are regulated, the money is regulated. Where is it coming from and where is it going? There are rules as to how someone can access money in a claim.”

Furthermore, says Jared, in the United States, a license to sell securities or handle client investments would require a person to meet certain ethical standards. If they don’t look out for the best interest of their client’s investments, it is a criminal offense.

“On Wall Street I can’t put someone in an investment that doesn’t fit them. That is fraudulent. If I called up your parents and said put money in this investment and they lost it all, in theory I could be arrested and go to jail.

“Binary doesn’t have that, there are no repercussions. What happens if someone loses money? Nothing.”

“I am shocked that Israel hasn’t shut this down,” he sums up.

A product that invites fraud

Yaron Zelekha, Israel’s former accountant-general, became known as the country’s foremost whistle-blower in 2007 when he exposed the financial improprieties of a sitting prime minister, Ehud Olmert.

‘I personally would not advise any Israeli to trade with any of these companies’ — Yaron Zelekha, Israel’s former accountant-general

Zelekha told The Times of Israel that he doesn’t want to tar all its players with the same brush, but that binary options and some instruments related to forex are designed in a way that creates a strong incentive for fraud.

“There is a very wide information gap between the public and these players, and they are exploiting it to their advantage. The broker is not giving you a service like in a bank; he is personally betting against you. This is a flagrant conflict of interest, because you’re betting on something, and the person reporting the outcome wants you to lose.”

Such circumstances invite fraud, says Zelekha, and “there is no small number of companies that simply defraud the customer. Sometimes that fraud is very sophisticated.”

Israeli economist Yaron Zelekha, (Yossi Zeliger/FLASH90)

Asked whether the entire industry should be shut down, Zelekha responds, “There is no need to throw out the baby with the bathwater, although I personally would not advise any Israeli to trade with any of these companies.”

What the industry does need, he says, is real-time regulation. He says there is software that can now do real-time monitoring of a company’s transactions.

Zelekha says the ISA has fought a long battle to regulate the online financial trading industry. “They deserve credit for their efforts, although the regulation won’t be effective if it isn’t done in real time.”

ISA: ‘We probably won’t allow binary options’

The Israel Securities Authority is housed in a 1920s Eclectic-style building in one of Tel Aviv’s loveliest neighborhoods, near the stock exchange. Itzik Shurki, director of the ISA’S Exchange and Trading Platforms Supervision, is a soft-spoken man, but he has harsh words for binary options.

Shurki says a new law to regulate online financial trading industries went into effect in May 2015. The companies that wanted to continue to offer their products to Israeli customers had to request a license from the ISA. Twenty-one companies requested licenses. One was disqualified, because its controlling shareholder, Aviv Talmor, had fled to Cyprus to escape arrest for alleged financial misdeeds. Talmor has since returned to Israel and is currently under house arrest. Two other companies withdrew their applications, leaving 18. Of these, four are primarily binary options companies, while the others seek to offer other types of CFDs, or contracts for differences, as well.

‘With binary options we’ve already informed the companies that our intention is probably not to approve this product’ — Itzik Shurki of the Israel Securities Authority

Almost a year later, none of the applicants has been approved. Shurki says that the industry is currently in a transition period while the ISA reviews the applicants. During this period, the 18 companies have permission to continue to operate.

“If we decide yes, they will become fully regulated companies; if we decide no, they will have to stop their operations.”

Which way is the ISA leaning? “With binary options we’ve already informed the companies that our intention is probably not to approve this product. Its basis is problematic. Because ultimately — I don’t want to use the word ‘gambling’ because it is a financial product — but in the way it is offered and in the short time frame, and with all its complexity, in our view it brings it closer to a guessing game than a financial product where you can evaluate its worth.”

Itzik Shurki of the ISA (Courtesy)

CFDs, or contracts for differences, a high-risk financial instrument that is also banned in the United States except on registered security exchanges, will be allowed in Israel, says Shurki. However, Shurki says CFDs will be regulated in real-time and aggressive or deceptive sales tactics will be rendered illegal. The ISA will monitor the prices of every product offered to make sure they are transparent and fair; traders will need to be licensed; and traders will also be prohibited from offering advice or tips to their customers.

“You can’t be in a position to give advice when their earnings are your loss,” Shurki explains.

This all sounds quite impressive. Once the ISA makes it decision, one might be forgiven for thinking, the binary options fraudsters will be out of business. But there’s a catch — a great big catch that potentially excludes the overwhelming proportion of binary options trading from effective supervision in Israel: The new regulations apply only to companies that target Israeli customers. If a binary options or forex company targets customers abroad exclusively, it will not be regulated by the ISA. Thus, to ensure that the new law not apply to them, companies need only exclude Israeli clients.

A quick visit to the websites of several binary options firms does indeed prompt messages saying the service is not available to Israelis.

Shurki says he is aware that the new regulations will not solve the problem of call centers that are defrauding people abroad, but says that such activity is not under the ISA’s jurisdiction, in the same way that the Financial Conduct Authority (FCA) only protects British citizens and the CFTC only protects Americans.

“If an American company tried to sell securities to Israelis, it would be our job to protect our citizens, not the Americans’ responsibility,” he explains, although he adds that the ISA does have very good information exchanges with its foreign counterparts.

Yes, but when an Israeli company steals from people in another country, is that not a crime?

“It is a crime,” says Shurki, but it’s not a crime for his authority to investigate. “There’s no such thing as a vacuum of authority. If an Israeli commits fraud or misrepresentation, that’s the purview of the Israel Police.”

The French connection

Perhaps nowhere is the hand-wringing and acrimony over Israel-based forex and binary options trading more anguished than in the community of French Jews living in Israel.

In January of this year, a cover story of the French-language “Israel Magazine,” a monthly glossy magazine and website serving the French-speaking community in Israel and the Diaspora, was titled, “Forex, is it kosher?”

‘A generation of young people is in the process of perverting themselves into worshipers of the golden calf’ — journalist in a piece warning about Forex

In the introduction to the piece, journalist Andre Darmon writes, “The point of this article is not to point a finger at some of our fellow citizens or co-religionists, because the phenomenon is global, but to raise awareness that a generation of young people is in the process of perverting themselves into worshipers of the golden calf. And that earning a living does not mean everything is permissible!”

“These call centers hire lost young souls,” writes journalist Ilana Mazouz in Alliance, a French-Jewish Internet magazine, “many who do not speak Hebrew or English, and for a short time provide the illusion of a normal life in Israel.”

Some rabbis have forbidden people from working in the industry, calling it “theft,” while rabbinic lectures on the Internet in French bear titles like “Forex, dirty work and Amalek.”

Again, numbers are hard to come by for how many young French speakers are employed in the industry. Didier F., a French-Jewish businessman, told The Times of Israel that after he graduated from the IDC-Herzliya, many of his fellow students were recruited by forex and binary options companies.

Didier asserts that many owners of forex websites are members of a French-Jewish community of conmen who are hiding from French law enforcement in Israel, where the police, he alleges, don’t bother them over-much.

As previously reported in The Times of Israel, about 10 recent immigrants from France were charged last year with cyber crimes and telephone scams, while France has reportedly sent Israel 70 additional formal requests for judicial assistance for cases of suspected fraud. A movie was recently made in France about one of these alleged fraudsters. The movie is called “Je Compte sur Vous, French for “I’m counting on you.”

“I love when they say French aliyah has increased so much; now it’s 7,000 people,” says Didier. “It’s great, I’m happy about it. But then you see that many of them are working in the forex industry or binary options industry. You go to Tel Aviv today, when you say to someone in the French community, I work in finance, they immediately think that you work in this shit.”

Adds Didier: “Even if it’s a small amount of money, they’re stealing money from poor people. It’s destroying families. Some people have killed themselves.”

According to a report in Le Nouvel Observateur, a French news weekly, l’Autorite des Marches Financiers, the French securities authority, received a staggering 4,500-plus complaints about forex and binary options fraud in 2014. Those forex and binary options complaints constituted 37 percent of all complaints about securities fraud received by the authority in that year. The majority of the forex transactions that prompted those complaints originated in Israel, the article claims.

What does Google have to do with this?

There is yet another piece of the binary options empire, and it relates to the way Israeli firms manage to reassure customers of their ostensible integrity, via Google.

Let’s say you are a potential binary options customer. A company has approached you about making a deposit, but you are not sure, so you decide to do your homework. You Google, “Are binary options legitimate?”

You will get a list of results, one or two of which may be fraud warnings from the US regulatory body, the CFTC. The first few pages of search results, however, are dominated by sites that purport to warn you away from “scam” binary options sites and steer you toward legitimate ones. Upon closer examination, however, many of these “helpful” sites themselves turn out to be affiliates of the binary options companies.

Next, you might Google, “Are binary options legal in the United States?” Once again, many of the top results turn out to be websites affiliated with the industry itself, rather than an objective source of information. Some of these sites offer misleading statements and half-truths like “There are at this moment no laws both on the federal and state level that forbid US citizens from trading binary options online.”

US law banning binary options is directed at the companies that market them, not the customers who buy them, so there is some truth in that statement. However, the SEC and CFTC clearly warn investors that “they may not have the full safeguards of the federal securities and commodities laws if they purchase unregistered binary options that are not subject to the oversight of U.S. regulators.”

Aerial view of the coastal city of Herzliya Pituah, July 21, 2010. (Moshe Shai/FLASH90)

Many countries, including Canada, publish updated lists of unregistered binary options companies that solicit customers in Canada in violation of the law. A recent Canadian list is here. The list features 37 companies. The Times of Israel went to the website of each company on this list. Some were no longer in operation. Others blocked users from Israel (presumably to avoid trouble with the Israel Securities Authority). One now hosts a porn site. Most were hard to pin down to a geographic location. However, based on first- and secondhand sources, The Times of Israel suspects that more than half of these companies, if not the overwhelming majority, operate from Israel.

“Investing with offshore companies operating outside of Canada can be risky and is a common red flag of investment fraud,” the Canadian Securities Authority warns. Yet if you Google “Canada, binary options, blacklist,” once again, many of the top search results appear to be industry-affiliated sites, some of which recommend as legitimate the very same sites that are on the Canadian government’s blacklist.

Bryan Seely, a Seattle-based cybersecurity expert, tells The Times of Israel he is not surprised to hear of these Google search results, which, he explains, show Google’s search engine being manipulated.

Bryan Seely (Facebook)

“Google doesn’t make a point of censoring stuff; you can find drugs, you can find steroids, you don’t have to go to the Silk Road. Google indexes the Internet and ranks things where it ranks them.”

Asked why, if this industry allegedly has so many victims, their voices don’t show up higher in Google rankings, Seely says, “the victims aren’t as good at promoting what happened to them as the people in the binary options industry are at promoting the stuff they’re selling. The victims aren’t all going to each other’s pages” — so each victim’s page would typically have only a low Google ranking.

Seely, who has been battling to raise public awareness of massive search engine manipulation in the locksmith industry — another area, incidentally, where systemic fraud in the United States, with large-scale Israeli involvement, has caused scandal in recent years — adds, “here’s the underlying issue: Is Google safe to use? Or Bing?”

What he’s really asking, when it comes to the binary options industry, is whether searching Google will lead a potential investor who fears being defrauded to the independent, credible and accurate information he is seeking. The answer, it would appear, is no.

Search engine optimization and the secret of success

Over the last decade, Israel earned the nickname “start-up” nation for its high-tech prowess. But not many people are aware that the country is also a global leader in online marketing and search engine optimization (SEO), an expertise it acquired in the “shadow industries” of porn, online gambling and binary options, according to TheTime’s 2014 report on the Israeli Internet industry. That expertise has plainly been applied by fraudulent binary options firms, whose affiliated sites show up high in Google searches — sending unsuspecting and naive clients their way.

Yoni S., an Israeli high-tech entrepreneur and SEO consultant, explains that without effective SEO, a fraudulent local player remains local, defrauding perhaps a few hundred victims in his vicinity. But with the power of Internet marketing, the scammer’s reach can go global.

The Times of Israel sent Google a request for an interview about the manipulation of its search platform by allegedly fraudulent businesses in the binary options industry, but Google did not respond.

What do the police have to say?

The Times of Israel contacted the Israel Police repeatedly to ask them about alleged fraud in the forex and binary options industries. Their answers underlined how law enforcement is struggling to grapple with the soaring, fast-moving challenge of Internet crime.

“If there are investigations going on into fraud, etc., I don’t have information on this. If someone has filed a complaint to the police, then let me know,” Israel Police spokesman Micky Rosenfeld replied.

A second police spokesperson, Luba Samri, told The Times of Israel, “We got lost in your question. Please focus it more. Who filed a complaint against whom?”

Finally, The Times of Israel called a third spokesperson, Merav Lapidot, and asked her what the police are doing about suspected fraud on a vast scale in the forex and binary options industries in Israel.

“This is something you’re claiming. If no one has complained about it, there is no issue. You want us to check every company in Israel and see if by chance they are committing crimes?”

Told that people who worked inside the industry have described widespread potentially fraudulent behavior on the order of hundreds of millions of dollars, affecting tens of thousands of people, Lapidot replied: “But no one has complained. I don’t know what happens in every company. That’s not our job. You could start a business tomorrow selling jewelry over the Internet. Will the police come to investigate your business?”

To the suggestion that there may be thousands of victims abroad, Lapidot said, “If there is someone who complained, we need to check that specific complaint. We’re not going to check a whole issue.”

Is it possible that an entire industry, much of it allegedly corrupt, is slipping through the cracks between Shurki’s Israel Securities Authority, which doesn’t handle crimes hatched in Israel whose victims are abroad, and the police, which won’t act unless specific complaints are filed with them?

Zvika Rubins, a PR consultant for the Israel Securities Authority, says the law simply hasn’t caught up with the dubious and crooked methods people have devised to make money on the Internet.

“When you talk about bits and bytes, it’s not that simple. Was there a crime? Where did it take place? For instance, let’s say you have a company and it’s incorporated in the British Virgin Islands and its servers are in India and it has a trading room in Israel. Is it an Israeli company? I don’t know.”

Rubins, who stresses that he is not an expert on criminal law, muses that if someone in Israel commits a crime against someone in, say, France, over the Internet, then it might be the responsibility of the French to open an investigation, trace the crime to Israel, and approach the Israeli police about it.

Zvika Rubins (Facebook)

Yoni S., the SEO expert, is outraged by this approach. “In Israel it’s against the law to murder, but if I establish a company in Israel that murders people through the Internet in Malaysia, that’s okay?”

Seely sees the problem as extremely serious and growing: “We’re becoming a global culture and global economy, and physical borders don’t exist on the Internet. It’s become easier to scam people all over the world. We have no protections in place to prevent it and it’s getting worse.”

“It’s a jungle out there,” says Yoni, referring to the fact that people do all sorts of things on the Internet that would be illegal within their own borders.

“The Internet came in, no one has passed any regulation yet, and now there is an opportunity to make tons of money in the jungle.”

A response from inside the industry

Tali Yaron-Eldar, Israel’s income tax commissioner from 2002 to 2004, in 2007 founded eTrader, a binary options firm that targets Israelis, along with Shay Ben-Asulin, who also co-founded AnyOption, one of Israel’s largest binary options companies with revenues in the tens of millions of dollars. In 2011, Ben-Asulin was indicted by the United States for securities fraud, and last month he was convicted of fraud by an Israeli court for helping an Israeli credit card company, ICC-CAL, illegally clear billions of shekels of charges from porn, binary options and gambling websites, as well as conceal the number of canceled transactions. For his crimes, Ben-Asulin will do five months of community service and pay a fine of less than $1 million.

Tali Yaron-Eldar (Screenshot Channel 10)

In a 2014 interview (Hebrew) with Israel’s Channel 10 news, when asked if she was discomfited by the fact of young demobilized soldiers and old pensioners losing all their money trading binary options, Yaron-Eldar responded: “Ask the people who invested and lost their money. All of them knew they were entering something risky.”

The Times of Israel contacted Yaron-Eldar to ask her about alleged fraud within the binary options industry.

To the extent that this is true, she said, it applies to unregulated companies.

“The companies with a license are very careful,” she says. “AnyOption [a company she is associated with] has a Cypriot license. It is very careful to follow the law. It is being watched all the time.”

In Yaron-Eldar’s view, and contrary to the opinions of other people interviewed for this article, Cypriot regulation is very tough, on a par with the UK’s Financial Conduct Authority (FCA).

Asked about the fact that the Canadian government has included AnyOption on a list of companies illegally soliciting Canadian citizens, Yaron-Eldar replies, “Not that I am aware of.”

In fact, Yaron-Eldar insists that AnyOption is not an Israeli company at all.

“AnyOption does not have offices in Tel Aviv. It’s a company that operates from Cyprus.”

Indeed, a perusal of anyoption.com reveals no references to Israel. Nevertheless, it is no secret that hundreds of employees go to work each day at AnyOption’s offices at 38 Habarzel Street in Tel Aviv’s Ramat Hachayal neighborhood. How does she explain this discrepancy?

“They’re not working for the same company,” she says. “They’re working for AnyOption Israel, not AnyOption Cyprus. The company they work for is a service provider to the company in Cyprus.”

In other words, AnyOption (like many other binary options companies with similar corporate structures) is not in fact an Israeli company, according to Yaron-Eldar’s reasoning. This means that it, and many others like it, is subject to Cypriot law and regulation, not Israeli law. Since much of the regulated part of the binary options industry is subject to Cypriot regulation, the honesty or dishonesty of those firms may hinge on the strength and honesty of Cypriot law enforcement.

Where are the victims?

The Times of Israel contacted the FBI to see if anyone had complained about forex or binary options call centers in Israel, but the agency did not respond.

ASIC, the Australian Securities and Investments Commission, replied in an email, “We don’t comment on operational matters, this includes confirming or denying if we have received complaints about a particular matter or not.”

A French government spokeswoman, however, confirmed that France has been having problems with forex fraud emanating from Israel.

“Yes, there are some cases of fraud, as you say,” she said. “Forex is not per se a fraud but it can be used for fraudulent objectives. We have had some cases between France and Israel, and we are in touch with the Israeli authorities about this. There is a very good cooperation between the two countries and the two services on this issue.”

Back to Australia

Ariel Marom, the mysteriously disappeared former forex employee who wrote that anguished 2014 letter to the Knesset, warned of the fallout when the extent of the corruption in the binary options industry in Israel is exposed.

“What happens when thousands of Turks, Russians, Spaniards, Italians and French figure out that the scam they fell for was carried out from here, in Israel?” he asked in his letter. “Are our regulators waiting for synagogues to start blowing up all over the world to shut this thing down?”

Dan Guralnek, the Australian immigrant, has drawn his own conclusions. “This amount of dishonesty would never be allowed to exist in Australia,” he says. “They would shut down [the industry] overnight.”

Guralnek recently became engaged to an Israeli woman. But he hopes to persuade her to move back to Australia with him, in part because of the high cost of living that drove him to work in binary options in the first place, and in part because of the corruption he has encountered.

“Now I see corruption everywhere I look,” he says. “Anywhere where there’s no light shining on the corruption in this country, it feels like it’s growing.”

CoursTorah.com, the website of a Francophone synagogue near Tel Aviv’s Hamedina Square, has a page on its website warning against the binary options industry, headlined “Stop the Scam!”

“Many people you know work directly or indirectly for these scam websites,” reads the page, warning that binary options and the majority of forex companies operating from Israel are fraudulent. It advises congregants to “run away from these companies!”

And it issues an evidently all too necessary reminder: “Let us remember the eighth commandment, ‘Thou shalt not steal.'”

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